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New Affordable Care Act FAQs: Employer Wellness Programs

The U.S. Departments of Labor (“DOL”), Health and Human Services, and the Treasury issued a new set of Frequently Asked Questions (“FAQs”) that, among other things, provides examples of when a health-contingent wellness program would not be “reasonably designed” as required by the Affordable Care Act. Examples of unreasonable plan designs include programs designed to discourage enrollment by individuals who are sick or may have high claims experience, programs that require unreasonable time commitments or travel, and outcome-based programs that do not provide a reasonable alternative to individuals who do not initially meet the relevant standard based on a health condition. The FAQs also clarify that compliance with the Affordable Care Act’s wellness program requirements does not ensure compliance with other laws, such as the ADA. The FAQs can be found here.

EEOC Issues Proposed Regulations on Wellness Programs and the ADA

On April 16, 2015, the U.S. Equal Employment Opportunity Commission (the “EEOC”) issued proposed regulations applying Title I of the Americans with Disabilities Act (the “ADA”) to employer wellness programs offered through a group health plan. The proposed regulations clarify that, under the ADA, wellness programs that collect employees’ medical information or require them to undergo medical examinations must be reasonably likely to promote health or prevent disease. Moreover, employees may not be forced to participate in the program or be denied coverage if they refuse to participate. In addition, employers will be required to provide employees with a notice describing what medical information will be collected as well as how it will be used and protected. The proposed regulations can be found here. A fact sheet for small businesses can be found here. A question and answer document can be found here.

DOL Proposes Changes to Prohibited Transaction Exemptions

Under ERISA and the Internal Revenue Code, a fiduciary advisor must qualify for a “prohibited transaction exemption” (“PTE“) in order to receive compensation for providing fiduciary investment advice to plan sponsors, plan participants, and IRA owners. In addition to the proposed fiduciary regulation, the DOL’s “Conflicts of Interest” proposal includes new proposed PTEs and proposes changes to several existing PTEs. The most significant new PTE, the proposed “best interest contract exemption,” would require investment fiduciary advisors to, among other things, enter into contracts with investors that would commit the advisor to acting in the investor’s best interests in order to qualify for the exemption. Links to the proposed new and amended PTEs are available here.

DOL Proposes New Definition of Fiduciary Regulation Related to Investment Advice

On April 14, 2015, the DOL issued a comprehensive package of proposed regulations and related guidance designed to protect retirement plan sponsors, participants, and IRA owners from perceived conflicts of interest in the retirement investment advice industry. As part of the DOL’s “Conflicts of Interest” proposal, a new regulation defining who is a “fiduciary” by reason of giving investment advice to retirement plan investors (including IRA owners) has been proposed to replace the current regulation defining a fiduciary in the retirement investment advice context, which was issued in 1975. The proposed regulation would significantly broaden the number of advisors subject to a fiduciary standard by expanding the scope of what is considered investment advice. There are some notable “carve-outs” from the definition of investment advice, such as for investment education and sales pitches to fiduciaries of large plans. Links to the proposed regulations, a news release, FAQs, and a fact… Continue Reading

Breach of Fiduciary Duty by Employer for Issuing Inaccurate SPD

A participant sued both his employer and the insurance company with respect to a long-term disability (“LTD”) policy that had been purchased by the employer. The participant alleged an ERISA breach of fiduciary duty for the failure to increase LTD benefits in accordance with the terms of the summary plan description (“SPD”). The U.S. Court of Appeals for the Sixth Circuit ruled that the employer (1) functioned as an ERISA fiduciary when it prepared and distributed the SPD to participants, and (2) breached its fiduciary duty by furnishing the participant with a misleading SPD. In particular, the SPD provision describing the annual increase in benefits did not refer to the other sections of the SPD on which the employer and the insurer had relied to deny the benefits increase. Also, the insurer’s self-serving interpretation of the SPD to deny increased benefits was determined to constitute a breach of the insurer’s… Continue Reading

IRS Makes Changes to EPCRS

The IRS recently published two revenue procedures, which make various modifications and clarifications to the Employee Plans Compliance Resolution System (“EPCRS“), as set forth in Rev. Proc. 2013-12. Of particular note under Rev. Proc. 2015-27 (released on March 27) is a clarification that, with respect to certain plan overpayments, a plan sponsor is not necessarily required to attempt to recoup overpayments directly from participants and beneficiaries. Rev. Proc. 2015-27 also reduced the Voluntary Correction Program fees required for certain participant loan failures. The second revenue procedure, Rev. Proc. 2015-28 (released on April 2), provides new safe harbor correction methods for employee elective deferral failures under 401(k) and 403(b) plans (including plans that have automatic contribution features). Pursuant to these safe harbors, the qualified nonelective contributions that were previously required under EPCRS to correct elective deferral failures may be reduced or eliminated if the failures are corrected within a specified period… Continue Reading

Court: Posting SPDs Solely on Company Intranet Insufficient under ERISA

A U.S. District Court recently held that posting an SPD on an employer’s intranet was insufficient to fulfill its obligation under ERISA to furnish SPDs to plan participants. The case involved a denied claim for life insurance benefits brought by a deceased plan participant’s beneficiaries. The participant had stopped paying life insurance premiums when she became disabled and stopped working. She also had not submitted proof of her disability to the insurance company, so she was ineligible for the policy’s premium waiver benefit that would have maintained her coverage during disability without additional premium payments. The beneficiaries argued, and the court agreed, that the participant did not have notice of the premium waiver’s requirements because she never received a current SPD. The evidence showed that the employer only made the SPD available to its employees via its internal intranet. Therefore, the participant could not have accessed the SPD after she… Continue Reading

Final Regulations Issued Under Code Section 162(m)

The IRS recently issued final regulations regarding the deduction limitation for certain employee compensation in excess of $1 million under the Internal Revenue Code. Proposed regulations were issued on June 24, 2011. The final regulations generally adopt the proposed regulations with some modifications. Code Section 162(m) generally imposes a deduction limit of $1 million on compensation paid by a publicly held corporation during any tax year to a “covered employee,” which generally includes the CEO and the three highest paid officers other than the CEO and CFO. However, the deduction limitation does not apply to qualified “performance-based compensation,” including stock options and stock appreciation rights (“SARs“). The final regulations clarify that for stock options and SARs to qualify for the exception, the requirement to specify the per-employee limitation in the plan is satisfied if the plan specifies an aggregate maximum number of shares with respect to which stock options, SARs,… Continue Reading

IRS Extends Temporary Nondiscrimination Relief for Closed Defined Benefit Plans

Employers have increasingly closed their defined benefit plans to new employees and placed those new employees in defined contribution plans.  Those closed defined benefit plans may, over time, tend to cover primarily employees who are highly compensated, which risks those plans becoming discriminatory in favor of highly compensated employees. In Notice 2014-5, the IRS provided temporary nondiscrimination relief for many of those defined benefit plans, if certain conditions were met.  Notice 2015-28 extends the nondiscrimination relief provided in Notice 2014-5 in anticipation of issuing amendments to the Code Section 401(a)(4) regulations. IRS Notice 2015-28 can be found here. IRS Notice 2014-5 can be found here.

Five Insurance Tips for Deal Makers: What Every Corporate Counsel Should Know

Insurance is a part of virtually every transaction.  Lenders want the security for a credit facility appropriately insured.  Lessors and lessees alike want real and personal property protected by insurance.  Buyers and sellers look to first party and third party policies to insure items sold and support the allocation of risk in indemnity provisions. For all its pervasiveness and importance, when it comes to drafting agreements, insurance terms may be treated as boilerplate when, in fact, the circumstances of a particular transaction may warrant a more careful and nuanced approach.  In order to avoid future disputes, fulfill the intents and expectations of the parties, and add value to the transaction, corporate counsel should be familiar with the following five insurance tips: 1.   Additional Insured v. Loss Payee.  Lenders will often require borrowers not only to maintain appropriate insurance protecting the security for a credit facility, but to name the… Continue Reading

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